It is open season on Airbnb in the media these days. After all, they are one of the Silicon Valley stars most impacted by the pandemic currently sweeping the globe. With travel at a near standstill, and us humans increasingly suspicious of each other the deadly germs we may or may not be carrying, it isn’t likely that we are going to return to the same world that existed before the virus. Even travel influencers might need to get a real job.
Airbnb was poised to have a blockbuster 2020, but against this backdrop, it has hit a nausea-inducing air pocket. The public offering is off the table for now. And if the Wall Street Journal1 reports are to be believed, the guests and hosts are all up in arms about the company and some of its new policies. The Journal reporters suggest that the board of directors wants the company to take a hatchet to its costs. At the same time, the Journal reports that some potential investors are uncomfortable with the management team, including CEO Brian Chesky.
Given the dismal data, things currently look bad for the company and its three co-founders (Chesky, Joe Gebbia, and Nathan Blecharczyk,) not to mention its thousands of employees. But let’s fast forward into the future. Will things remain as bad as they are at present, or will they improve? That is the billion-dollar question. And your answer to that question identifies you either as an Airbnb bull or a bear.
Most will fall in the “bear” category, but not me. I guess I have a contrarian point of view of the company. And it starts with two investors – Silver Lake and Sixth Street Partners – who just gave a whopping billion dollars in debt to the company, albeit at draconian terms. In other words, even in this “end-of-the-world scenario,” two savvy investors were ready to take the bet on the company and its future. My main point is that no one gives you a billion dollars unless they see a chance to make money on their investment. And that is a good tell on Airbnb’s chances. It wouldn’t surprise me to see lemmings show up and put anywhere from $500 million to $1 billion in additional debt into the company. What’s good for the sharks is good for the pufferfish, right?
About a decade ago, I wrote a blog post describing what makes for a hit consumer internet service. They had these three ingredients:
- They have a clear purpose.
- They are simple to use.
- They are fun to use or facilitate some type of entertainment or both.
My original examples included Google and Netflix. And if the stock market valuation of those two companies is any indication, then those deserve the label of a “hit” service. Netflix has stayed pure to its mission.
- It has a clear sense of purpose: Watch movies and television shows.
- It is dead simple. You don’t need a manual to get started.
- It is all about “fun” or “entertainment.”
Because it had a clear purpose, Netflix could make the transition from physical media to streaming media by embracing broadband early. It knew its raison d ‘être, and that is why it didn’t hesitate to take on the significant overhead associated with making original series and shows. Fast forward to today, and everyone, including the mighty Apple and Amazon, wants to be a pale imitation of the former DVD rental service. In other words, Netflix took a clear and wider-lens view of its purpose.
Now how does this apply to Airbnb? First, they have a great brand. It is what allows them to outdo rivals, such as Booking.com, Expedia, and others. Many consumers have a positive view of the company, though that might change if the company doesn’t properly manage its guest relationships.
More than just travel
Let’s apply my afore mentioned framework to Airbnb.
- It has a clear sense of purpose:
- It is dead simple to use. You shouldn’t need a manual to use it in the future.
- It is about fun and entertainment. (Maybe infotainment and edutainment, but still entertainment. )
If you think of them solely as a “travel company,” then you are right to have doubts about their future. Booking rooms or apartments for travel purposes should only be one aspect of the company. If Airbnb thinks of itself as an “experience company,” then they can ride out the storm and even figure out a way to grow in these isolated times.
Pico Iyer, one of my favorite writers, wrote it best: “Travel is not really about leaving our homes, but leaving our habits.” It is a chance to experience new places, cultures, food, and ideas. Airbnb has to help enable that idea of experience, even if it means doing it from the confines of our homes.
In other words, Airbnb should be using its enormous resources to transform itself into a company that is no longer just about in real life. Its treasure trove of data should allow them to offer up their tasteful version of Travel TV or Food Network. How about an Airbnb version of MasterClass featuring artisans and artists elsewhere around the planet? If I have to cook, why not learn to make pasta from an expert? How about learning painting from an artist currently stuck at home in Paris? How about a solo concert by a pianist? Airbnb has the audience, technology infrastructure, billing infrastructure, payment systems, and global relationships to offer a scalable platform for virtual experiences. Right now, we are putting up with Zoom for our entertainment and education. Why not have something better?
Airbnb has built an experiences business already, though it seems like a money loser at present.
But what of their current business? You know, the one that involves traveling to places and renting apartments or rooms. Casual travel is going to take a huge hit, so that is definitely going to shrink. But this is not necessarily a bad thing. The pandemic could be a cleansing moment for the Airbnb ecosystem to get rid of those professional hosts who aren’t even residents in the cities where their rentals are located. These types have perverted the original idea of Airbnb, which primarily entailed individuals making a bit of extra cash by renting out a room or their apartment when traveling. The simpler, shrunken ecosystem could be a good thing, in my opinion.
And in six to twelve months, when necessary travel returns, it isn’t too far-fetched to think that everyone will be spending less lavishly on their trips. In fact, folks will likely opt for a more manageable place to stay. I don’t know about you, but I am more suspicious of being in a big hotel with hundreds of people than a small apartment, which I can personally clean and disinfect.
Of course, a lot of this is all theoretical, and it is dependent on Brian and his co-founders. The word around the valley has been that like many other investor cash rich unicorns, Airbnb got too big and bulky. They will need to move fast. Most importantly, they need to get comfortable with the idea that the post-pandemic Airbnb will need to be smaller, leaner, and more agile in adapting to the new reality.
Somehow, they will have to convince their investors that their path is the right path. Brian and his co-founders have proved doubters wrong numerous times, and I am confident that they can do it again.
Almost a lifetime ago, a very young but determined Chesky told me:
“When you don’t have money, you cannot have five strategies, and you have to pursue one strategy. You cannot build things people don’t really want.”
I hope he remembers his own words.
April 9, 2020. San Francisco